Guess Which Country Depends Most on Money From Abroad?

Why you should care

The goodwill of those who’ve left Tonga accounts for more than a third of the island nation’s GDP.

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By Maroosha Muzaffar

The Daily DoseJAN 23 2019

It’s an age-old story: Workers leave their home country, seeking greener, more lucrative pastures, and they send some of their money home to help sustain their families. A 2017 United Nations report found that 258 million people — 3.4 percent of the world’s population — are living in a country they weren’t born in, a 49 percent increase since the turn of the millennium. About three-quarters of those people are working age, and a lot of them are sending money home. So many, in fact, that not only do families depend on those remittances but some countries do as well.

While India has the highest number of citizens living abroad and is estimated to receive the highest dollar amount of remittances at about $79.5 billion, tiny Tonga has jumped to the top of the list when it comes to percent of its GDP, according to a December 2018 report by the World Bank Group. It showed that …

Remittances from abroad constituted 35.9 percent of Tonga’s gross domestic product last year — the highest proportion of any country.

The 169-island archipelago only has 109,000 citizens, and a 2017 report from the International Organization for Migration estimated that the number of Tongans living outside its borders outstripped the number still living there.

Keshmeer Makun of the University of the South Pacific says Tonga’s dependence on the outside world began with post–World War II migration. “Migration is also substantially due to colonial ties, and Pacific Islanders use this link to emigrate,” he says. “Today, in some small Pacific states such as Niue, Cook Islands, there are more people overseas than in their own countries.” Many [in Tonga] began to move out of the country once they started facing shortages of agricultural land and educational and work opportunities. Makun says the first moves were internal, but soon the people started taking overseas journeys to New Zealand, Australia and the United States. That migration, particularly of working people, has left Tonga with an age-skewed population, with 33 percent of its residents under the age of 15 compared to 25.9 percent of the world population.

But while migration from the island chain has long been common, Tonga’s ascension to the top of the World Bank remittances list is new. Last year, it came in second to Kyrgyzstan — which this year ranks second — where lack of investment in the country has long spurred young people to work in Russia and other international locations to support their families. So why has Tonga zoomed ahead? According to the U.N.’s 2018 World Investment Report, Tonga’s foreign direct investment has slumped from $56 million in 2014 to $14 million in 2017, a fact that may be linked to the threat of climate change, which has already forced some Tongan villages to relocate and threatens major coastal settlements, with sea level rising at a rapid 6 mm per year. About 30 percent of Tonga’s GDP depends on agriculture, which is expected to be threatened by extreme rainfall and other weather associated with climate change. Another big industry, fishing, could be decimated by warming and acidifying seas. These factors could well contribute to the precipitous drop in foreign investment to Tonga, which has made remittances even more important to the economy at both the household and national level.

Remittances in Tonga, according to a 2015 estimate, are more valuable than either exports or formal aid and serve as a key part of Tonga’s financial system. That’s not just money but also goods, some of which are sold and become part of Tonga’s own industry. But while migrants’ contributions to families and organizations back home tend to stay stable even as they stay away for longer, according to John Connell in the case study “Samoa and Tonga: Migration and Remittances in the 21st Century,” the future of remittances is far from assured. As a new generation born to Tongan parents overseas grows up, their tendency to send remittances to the families back home isn’t yet known — but available evidence indicates it may be limited. “Their social and economic ties are likely to increasingly be with each other,” writes Connell, “rather than with ‘home.’”

To keep those generations engaged and strengthen their bond with their heritage, a 2017 report recommended that Tonga invest in celebrations of Tongan culture with diaspora communities and encourage tourism from those groups to Tonga.

Another factor is the cost of sending money. In 2017, it was estimated that a $200 remittance from Australia to Tonga cost more than $24 — and so the encouragement of small, local players to up the competition with big money-transfer companies like Western Union could make a real difference for those sending money back.